Journal Report

But whether investors should take the no-commission route is by no means a no-brainer.

Commissions have long been a shortcoming of ETFs. Long-term investors tend to like ETFs for the low expense fees, tax efficiency and indexed approach they offer. But for investors who contribute small amounts to their portfolios on a regular basis—or even only now and then—commissions on ETFs can add up.

San Francisco-based Charles Schwab Corp.SCHW-0.88% made the first move, introducing a line-up of commission-free ETFs back in November 2009. Fidelity Investments, Vanguard Group, TD Ameritrade Inc. and St. Louis-based Scottrade Inc. have all followed suit.

But investors shouldn't assume that an absence of commissions puts all of the products in this category on a level playing field. Indeed, each firm's products vastly differ. There are big gaps in the kinds of sectors and themes covered, additional fees can be charged, and expense ratios vary, too.

Most Choices

Ameritrade offers the most choices, with 101 commission-free ETFs, all of which are managed by other companies, including BlackRock Inc.BLK-0.72%'s iShares unit, Invesco Ltd.'s Invesco PowerShares and Vanguard. The funds cover such core asset areas as fixed-income investing and domestic and international equities. Commodities and single-country ETFs are also included. Ameritrade, based in Omaha, Neb., receives no special compensation or management fees from any of the ETF providers, a spokeswoman says.

ENLARGE

See four sample portfolios without commissions.

Vanguard, by comparison, has 64 commission-free ETFs, Fidelity 31, Scottrade 15 and Schwab 13. Vanguard, based in Valley Forge, Pa., and Schwab offer only their own ETFs without commissions.

Vanguard's lineup is strong in equities, ranging from large-cap value to small-cap growth, sector and international funds. Schwab, too, offers equity funds in broad strokes, mostly focused on large caps, but it lacks variety in fixed income.

Boston-based Fidelity, meanwhile, offers a basic range of equity-based funds, along with international and some fixed income. Scottrade, through its FocusShares subsidiary, offers funds that cover a broad range of U.S. stocks but no international or bond ETFs.

The no-commission ETFs offered by Vanguard, Fidelity, Scotttrade and Schwab don't include commodity-based or single-country funds.

Mr. Justice sees the value for investors who make small trades on a regular basis. On investments of $200 to $300, he says, even a commission of $8 adds up over time, and that can be a reason to go commission-free.

There are other considerations to take into account, though, than whether an ETF comes with or without a trading commission.

In general, says Rick Ferri, founder of Portfolio Solutions LLC, don't invest in a fund "that you really didn't want just because you're going to save $8 on a commission."

Read the fine print, too: Investors can unwittingly incur fees that exceed the average commission. Ameritrade, for one, charges a $19.99 fee for trading a no-commission ETF within 30 days of buying it.

No Free Lunch

Then there are the expense ratios. Mitch Tuchman, co-founder and chief executive of marketriders.com, an ETF-focused online portfolio manager, says it can make more sense to pay the $7.95 that Fidelity charges for some ETFs than to buy an iShares ETF with no commission but higher expenses.

ENLARGE

"There's a cutoff point," Mr. Tuchman says. "If you're saving on commissions and paying five times more in fees, it doesn't make much sense."

Many no-commission iShares ETFs have higher expense ratios than the competing no-commission funds from Ameritrade, Vanguard, Schwab and Scottrade. BlackRock declined to comment on its iShares fees.

But high expense ratios should be weighed against another consideration: the size of the fund and the liquidity of its shares—factors that have an impact on trading costs.

If an ETF is small and thinly traded, there's more likely to be a wide spread between the price at which you can buy the ETF and the price you'd get for selling. Wide bid-asked spreads can mean getting nicked for 1% of your purchase, analysts say.

By contrast, although iShares carry higher expenses than other ETFs, they are some of the largest and most heavily traded ETF products. As a result, Morningstar's Mr. Justice says the iShares ETFs generally score "very well" on Morningstar's measures of trading expenses such as market impact and bid-asked spreads.

Though Schwab was first out of the gate with no-commission ETFs, it's now playing catch-up in terms of number and variety of products offered.

Tamara Bohlig, Schwab's vice president of product management, says the firm's strategy initially focused on broad, core categories. "I would envision that we would continue to fill those gaps," she says. These types of products help educate and focus consumers' attention on the broader category of ETFs, she says, which are still relatively new in the investing world. In theory, they can also bring Schwab new customers.

Morningstar's Mr. Justice says it's too early to say whether no-commission offerings drive people to use ETFs or to switch brokerages. But, he adds, "I wouldn't be surprised if every major discount brokerage in some form catches on."

Ms. Glazer is a staff reporter for The Wall Street Journal in New York. Email her at emily.glazer@wsj.com.

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